Back to the Great Depression

Dour times bring unparalleled disclosure.  More and more companies have been referring to the Great Depression when describing their operations.  Heavy equipment manufacturer Caterpillar defends its cyclically poor performance by claiming it has withstood adversities such as world wars and the Great Depression.   The company boldly states that it “will emerge from this even stronger” than it is today.   Life insurer Prudential claims its credit reserves are able to withstand the equivalent of the “default experience during the Great Depression.”  

Deal Savers:  Contingent Rights Agreement

Along with the rise in pharma M&A activity, more companies are willing to enter into contingent rights agreements as a form of consideration and “deal sweetener.” Acute care pharmaceutical maker Medicines Co. just entered into a contingent payment rights agreement with American Stock Transfer & Trust as the rights agent.  The agreement sets forth cash payments to the company should the company receive approval by the European Medicines Agency for certain marketing strategies, FDA approval for one of its products, and sales in excess of $400 million.  Medicines Co. announced its merger with Targanta Therapeutics Corp. in late February after it completed a two-step tender offer for all Targanta’s outstanding shares.

Director Nominees:  Time for a Change?

Companies have been furiously amending their bylaws in advance of their shareholder meetings to add advanced notice requirements.  For example, Vaalco Energy recently amended its bylaws.  Shareholders must now provide written nominations within a certain timeframe.  Similarly, Newfield Exploration just amended its bylaws, increasing the time that shareholders must submit director nominations from 45 days to 75 days prior to the first anniversary of the prior year’s meeting.  Following last year’s Delaware Chancery Court decision requiring companies to hold nominations clearly and unambiguously separate from elections, companies are clarifying the terms of their advanced notice provisions.

Rocky Roads for Retail

How is specialty retail managing to survive the economic downturn? Many retailers are furiously working to raise capital.  In an encouraging sign, clothing specialist Talbots recently renegotiated its credit terms and entered into a $200 million term loan facility to completely pay down its acquisition debt.  However, the company also suspended its dividend and froze its pension plan.  With these efforts, Talbots expects to see a $35 million cash savings.  Meanwhile, in an eyebrow and cash raising move, luxury jeweler Tiffany & Co. just sold a $250 million note to Warren Buffett’s Berkshire Hathaway.  Tiffany intends to use the proceeds to refinance existing indebtedness.  

Forbearance:  When Creditors get Creative

Debtors are doing whatever they can to stay above water these days and forbearance agreements seem to be a popular way for companies to keep their creditors happy.   Forbearance agreements allow companies to avoid defaults and buy a little more time in the hopes that market conditions will return to normalcy.  National Holdings Corp. recently entered into a forbearance agreement with St. Cloud Capital Partners.   The agreement sets forth payment terms that allow National Holdings to repay a note in installments, rather than in one payment.  Generex Biotechnology also recently entered into a forbearance agreement with several of its creditors after acknowledging “certain events of default.”  Under the terms of the agreement, Generex must pay $3 million up front and maintain a minimum bid price.   

Published:  March 5, 2009